Colorado Preps for Recreational Marijuana

Driving east on Interstate 70 through Denver’s warehouse district, the smell of the marijuana plants growing inside unmarked industrial buildings blasts through car air vents and overwhelms drivers who roll down their windows. The smell is a pungent reminder that the state of Colorado is now home to some of the world’s laxest marijuana regulations.

The state legalized medicinal marijuana use in 2000, but in November voters in Colorado went even further by approving a constitutional amendment that legalizes recreational marijuana for all users over 21 and aims to “regulate marijuana like alcohol.”

Now, a governor-appointed “Amendment 64” task force is racing to draft regulations on everything from banking to public safety, to submit to the governor and the general assembly by the end of February. The legal sale of marijuana to recreational users is scheduled to begin as early as October.

The passage of the new law raises a lot of questions, especially for the established medical marijuana community. While marijuana advocates cheered Amendment 64’s passage, Colorado’s current medical marijuana providers, arguably the nation’s most successful and well-regulated, are apprehensive about how the new laws might change the current landscape. These businesses, 299 medical marijuana centers statewide at the end of 2012, have completed 1000-page business applications and probing background checks, paid taxes to the state Department of Revenue and still managed to turn a profit.

Now that recreational marijuana is legal, medical marijuana sellers must decide whether to pursue a permit to serve recreational users, or remain medical dispensaries. If they do expand their operations, how might the new recreational market change their relationship with their medical patients? And most importantly, will the federal government shut them down as soon as they begin serving recreational users?

Established Medical Marijuana Market

When it comes to regulating marijuana, Colorado is further along than the state of Washington, which also legalized recreational marijuana use in November’s election. In Colorado, unlike in Washington, medical marijuana dispensaries are for-profit businesses and all dispensaries and employees are registered and licensed, which has helped legitimize an industry that’s been forced underground in most of the world. You won’t see marijuana leaves emblazoned on dispensary doors or pictures of Bob Marley on the walls. Instead, they feel like small doctors’ offices with waiting rooms and helpful receptionists.

“We’re trying to rebrand the image of marijuana in general and get away from that pot stoner culture,” says Jason Katz, head of operations at Local Product, a Denver dispensary located in view of the statehouse. “As long as we can continue to keep doing that with the recreational model…we’ll be moving in the right direction.”

For most medical marijuana sellers, the decision to serve recreational users is likely to come down to economics—there will simply be more customers, and more money, for businesses who serve recreational users alongside medical users.

“If anyone over 21 can buy marijuana,” says Katz, “why would a patient go through a $100 state registration process to get a medical marijuana card when they can just buy it without doing any of that? I think it makes sense for our business to go recreational in that it will open up our customer base.”

Analysts expect that customer base to be upwards of one million in-state consumers, which for a marijuana products manufacturing company like Denver-based Dixie Elixirs, spells big profits.

“Ultimately my goal is to sell our business to big alcohol, big tobacco, or potentially big pharma,” says Tripp Keber, managing director of Dixie Elixirs. The company makes more than 75 marijuana-infused products, ranging from marijuana-infused truffles to flavored sodas to non-psychoactive cannabis body lotion. Located in the Denver warehouse district , a whiff of the outside air leaves little doubt about the new cash crop in town.

But until the regulations are finalized later this year, business owners who want recreational permits will have to sit on their hands. They’ll have to make sure they follow all the rules, such as not selling to anyone without a medical marijuana card, says Denver medical marijuana lawyer Warren Edson. That takes a lot of restraint. Since Amendment 64’s passage, says Katz, he’s had about three or four people a day either calling or knocking on the door of his dispensary asking to buy recreational marijuana.

Writing The Rules

In a dimly-lit room in a Denver office building across the street from the golden-domed statehouse, the first draft of the new rules for recreational marijuana are being hammered out by agency officials, medical marijuana interest groups, lawyers, doctors and concerned citizens. The mundaneness of the setting belies the enormity of the task: creating the most open marijuana market in the country while at the same time protecting public health, safety and trying not to run too far afoul of the federal government, which still considers marijuana use—medical or otherwise—to be illegal.

At a working group meeting of the Amendment 64 task force last week, banking issues took center stage. Under the Controlled Substances Act, any bank that takes money from an illegal enterprise can lose its FDIC coverage and potentially be prosecuted. This means that medical marijuana businesses are cash only, which makes for a potentially dangerous situation where businesses have thousands of dollars in cash on hand at any given time, making them vulnerable to robbers.

But fixing this problem would require action from the federal government, which is unlikely in such a short amount of time. However, the attitudes in Washington, D.C. about marijuana seem to be tacitly on the side of state experimentation.

The Obama administration is taking a hands-off approach in both Colorado and Washington, saying his administration has “bigger fish to fry” than going after recreational marijuana users in those states. And a 2009 U.S. Department of Justice memo made clear that pursuing medical marijuana users would be the administration’s lowest enforcement priority.

That bodes well for Colorado, since its strict medical marijuana regulations seem to have satisfied federal drug enforcement authorities. Few Colorado dispensaries have been shut down and raids are uncommon, unlike in California where the Drug Enforcement Agency has raided and closed hundreds of dispensaries in the last few years. Many in the medical marijuana community hope that the Amendment 64 task force and ultimately the general assembly simply roll over many of the medical marijuana regulations into new recreational regulations.

The regulations also make business owners and employees feel safer navigating this legally precarious industry. Other states such as Massachusetts, Arizona, Connecticut that are crafting their own medical marijuana regulations are looking to Colorado’s example as a way to serve patients while not upsetting the federal government.

A Marijuana Trajectory

Indeed, national political analysts agree that Colorado’s trajectory, from making marijuana possession the lowest criminal priority, to legalizing medical marijuana and then legalizing recreational use, is the ultimate goal for most activists. “I don’t think the distinction between medical and recreational marijuana will hold up,” says Allen St. Pierre, executive director of the National Association for the Reform of Marijuana Laws (NORML). “We hear people asking, why be in purgatory? Why spend 10 years on decriminalizing possession and medical marijuana only to move on to recreational later?… Legalization is so much more politically salient now that it makes the discussion around medical marijuana almost pedestrian.”

Already this legislative session, legislators in five states have proposed medical marijuana legislation and in five other states, legislators will consider following in Colorado and Washington’s footsteps to regulate marijuana like alcohol, according to the Marijuana Policy Project.

But however the states regulate it, marijuana remains a Schedule I narcotic in the eyes of the federal government, equivalent to heroin and LSD. That means that, while unlikely, all of these business owners, employees, and even regulators are open to federal prosecution. While the risks are still high, Keber says he sleeps pretty soundly.

“We operate with our doors wide open,” says Keber, “and we’ve hosted law enforcement officers, state and federal legislators here. The reality is that (prosecution) is always a concern, but I don’t lose sleep over it. If federal agents arrest me… they should go to mayor’s office since he puts his name on the business license, then they should wrap up the governor since he signed it into law.”